Analysts expect the media conglomerate to report first-quarter earnings in the double digits; ESPN ad revenue is a further boost.
February 5 2007: 4:44 PM EST
LOS ANGELES (Reuters) -- DVD releases of "Cars" and "Pirates of the Caribbean: Dead Man's Chest" and ad revenue from ESPN's Monday Night Football are expected to boost Walt Disney Co.'s first-quarter earnings by a double-digit percentage.
That is stronger than many on Wall Street had expected late last year, but analysts are uncertain whether the entertainment conglomerate, which reports Wednesday, can maintain its blistering earnings growth over the year.
Bulls see plenty of room for growth for Disney in 2007, fueled by new markets for its media, but bears say last year's strong performance will be tough to beat by such a wide margin, especially given investments and expenses at its theme parks and media networks.
"There have been some continued bears on the Street pushing that Disney's growth rate potential has run its course and they were certainly wrong in 2006 and likely destined to continue to be wrong again this year," Credit Suisse analyst William Drewry said in a note Monday.
Disney (up $0.08 to $35.26, Charts) has forecast average double-digit annual earnings growth through 2008. The company can still make good on that pledge by turning in single-digit earnings growth this year.
Wall Street expects Disney's net earnings to grow year over year by 17.8 percent in fiscal 2007, when it is expected to benefit from asset sales, to $1.93 per share, and by 3.3 percent next year to $2, according to Reuters Estimates.
On an adjusted basis, Disney is expected to post year-over-year earnings growth of 8.7 percent, or $1.73 per share, and 14.4 percent, or $1.98 per share, in fiscal 2008.
Earnings may get a boost in the quarter from Disney's sale of its E! Networks stake to Comcast Corp (down $0.43 to $42.63, Charts) for $1.23 billion and the $300 million sale of its stake in celebrity magazine US Weekly, which had been expected to close last year.
"Clearly the studio is going to have a better quarter than in quarters past," Sanders Morris Harris analyst David Miller said.
On the strength of "Pirates" and "Cars," Walt Disney Studio turned the corner last summer on four consecutive quarters of negative revenue comparisons. The two movies grossed a combined $1.5 billion worldwide at box offices.
Pali Research analyst Rich Greenfield predicted that growth at the studio division would be "explosive" as a result of "no mistakes and a lot of profitable DVDs" and that quarterly earnings would be 39 cents per share.
Miller was looking for "high single-digit operating income growth" in Media Networks, Disney's largest revenue and operating income contributor.
"They did very well in the fall quarter with Monday Night Football but that has very expensive rights fees they have to amortize," Miller said.
Deutsche Bank analyst Doug Mitchelson raised his EPS estimate to 41 cents, an 11 percent increase over last year's first quarter, due in part to strong ad sales and ratings at ABC and ESPN and wider margins at its international channels.
Mitchelson said Disney's share price still has room to grow as the company's media debuts in more international markets and on television and the company repurchases shares.
Mitchelson also saw a slight downturn in Consumer Products revenue as the division struggles to match last year's successes in its Buena Vista Games division, including "The Chronicles of Narnia" and "Chicken Little."
But Disney's domestic theme parks, which face tough comparisons with its 50th-anniversary promotion in 2006, could crimp growth.
"They are up against extremely tough comparisons on the parks line for the present quarter, the quarter they are about to report and the next two quarters," Miller said. "They knocked the cover off the ball ... at the parks last year."
At least one analyst said that while Disney was on track for a strong first quarter, its growth prospects for the rest of the fiscal year were questionable.
"Our concerns relate to difficult comparisons at the studio and theme parks, an overall slowing in cable network pricing, investments in consumer products and the broadcast division," CIBC World Markets analyst Jason Helfstein said in a note.
Helfstein forecast fiscal year earnings per share growth of 4 percent, year over year, for Disney.
Disney competes with CBS Corp (up $0.21 to $31.56, Charts), Time Warner (down $0.20 to $21.55, Charts) (parent company of CNNMoney.com) and News Corp (down $0.23 to $24.21, Charts) in the media industry.
